IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities. Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family owned businesses. The following blog has been provided by Lisa Forrest of Live Oak Bank (www.liveoakbank.com).
Preparing to Approach a Business Acquisition Lender in the Coronavirus Climate
As discussed in our previous blog post, “Finding Small Business Capital in Tumultuous Times,” businesses can actually secure financing amid this crisis. This blog post will provide additional financing guidance regarding the top things to consider for a buyer approaching a lender for Business Acquisition financing.
While it is important to understand the various loan options right now, it’s also crucial to realize that banks will be posing questions with a different lens. Adequately preparing to approach a lender is extremely important, now more than ever. Buyers can prepare for these conversations by earnestly considering how the virus has affected each opportunity under review, the current business model and its reliance on having the virus contained to operate profitably, and how successful the seller has been in pivoting to stay successful moving forward.
If you are a buyer in the Lower Middle Market and contemplating a business acquisition loan, review these questions that a Lender will ask. Make sure you have meaningful conversations with the seller/sell-side advisor and prepare your own due diligence so that you can confidently approach a lender.
Impacts of COVID-19
- How has the business been impacted by COVID-19?
- Was the business shut down, and for how long? And Why?
- What measures did the seller take to navigate these financial or operational impacts?
- What potentially long-lasting effects do you foresee for the industry as a whole?
- Did the seller have to pivot in any way? Any recent changes to the business model if a re-opening occurred?
- Would the buyer have to change anything about the operations or model in the near future?
- Any growth opportunities?
- Were employees laid off or furloughed, and have/will they be re-hired back? Please explain pre-COVID employee count versus post-COVID employee count.
- Were any key employees let go and not re-hired? Please explain their roles and plans to operate the business in their absence.
- What was the seller’s role in the business prior to COVID-19? Did he/she change roles/responsibilities since the virus outbreak?
- How will you work with the seller through the transition? Is a smooth transition in any way hampered by COVID-19 protocols?
- Who are your business customers?
- Is there any kind of customer concentration, and if so, are they still in business and/or how have they been impacted?
- Has the business had trouble collecting on receivables?
- Are the customers’ health or business operations hampered by COVID-19 impacts?
- Has the production/supply chain been disrupted? Please explain pre-COVID and post-COVID.
- If there are any changes in the supply chain, do you expect profit margins to be affected?
- What are the current working capital levels required to adequately operate the business?
- Did any of the owners have to inject personal liquidity recently to support operations? If so, how much?
- Will additional working capital be needed with loan proceeds?
- What level of working capital is included in the purchase?
- Does the business currently operate with a line of credit? What is the required Line of
Credit on a go-forward basis after the debt is added to the balance sheet?
- Did the business receive a PPPor disaster relief loan, EIDL or grant?
- Does the business expect the PPP loan to be forgiven?
- Will the PPP loan be paid off by the seller prior to the sale of the company?
- What are your detailed business projections for the next 3 years? These should depict month-by-month data for at least 12 months, as well as contain detailed assumptions.
To access more information and best practices for helping your business succeed in the Coronavirus climate, visit our library of relevant resources. There you’ll find helpful downloads, guides and articles to help you navigate these uncertain times.
Lisa Forrest is the SVP Head of Sponsor Finance and a senior M&A finance professional for Live Oak Bank. If you have questions about the content of this article or any area relevant to business acquisition financing she would welcome you to contact her at (425) 999-2042 or firstname.lastname@example.org.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, and real estate communities on subjects relevant to the purchase & sale of privately held companies and family owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.